SoCal wildfires challenge retailers and landlords

The massive wildfires that raged across Southern California just before the 2017 holiday shopping season capped off a year of natural calamities that severely challenged U.S. property owners, retailers and other businesses. The succession of fast-spreading December fires in the Los Angeles and San Diego areas — following hard on the heels of the autumn wildfires in the Wine Country to the north — damaged or destroyed multiplied millions of dollars worth of structures and, in the process, also aborted millions in potential retail revenue.

Though dozens of Los Angeles–area retail buildings were deemed a total loss, the biggest losses to the industry are likely to result from business interruption, perishable inventory and consumer out-migration, according to Burt P. Flickinger III, managing director of New York City–based Strategic Resource Group. Flickinger, who in mid-December toured Southern California to assess the damage, says the impact on the local economy could last for years.

“The property and casualty insurance guys told me they were going to be record-breaking claims,” Flickinger said. “They are overwhelmed.” Some burned retail structures may never be rebuilt because claims won’t cover the full cost of rebuilding in the majority of them, he said. “To gets these claims settled can take three to five years.”

The December fires damaged four Macerich centers. Three of those — La Cumbre Plaza, in Santa Barbara; The Oaks, in Thousand Oaks; and Pacific View Mall, in Ventura — suffered “significant store closures” and air-quality issues, although anchor stores were able to remain open, according to Macerich spokeswoman Nicole Flynn. “Our teams distributed water and masks to retailers and guests,” she said. La Cumbre Plaza was used as a fire-fighting command post, she said. The fourth Macerich center, Santa Monica Place, was affected for a shorter period of time, though falling ash did force retailers to shut down and drove people from the area, Flynn says. It is too early to estimate the overall sales impact these closures had on the Macerich centers, but after the fires were contained, business and traffic picked up measurably during the two weeks before Christmas, she says.

Westfield Valencia Town Center, situated between the sites of two of the fires, suffered air-quality issues but did not have to be evacuated, according to Westfield spokeswoman Catharine C. Dickey. Westfield Valencia’s parking lot served as a staging area for fire command operations, she says. The center helped raise funds to help the victims. “Other than that, it was business as usual and a busy holiday shopping season,” Dickey said, noting that no other Westfield centers in the area incurred damage.

“The property and casualty insurance guys told me they were going to be record-breaking claims. They are overwhelmed.”

December’s unusually warm and blustery conditions fueled by bone-dry Santa Ana winds created unprecedented fire danger and many apocalyptic scenes. The fires prompted the evacuation of hundreds of thousands and closed road access to many commercial areas, leaving retail employees and commuters in the lurch. For perspective, the wildfires raged over an area roughly a third the size of Rhode Island.

The fires may be the tipping point for some California residents already bedeviled by high taxes, long commutes and a high cost of living, Flickinger says. Already, some 44,000 Californians are leaving the state annually, and the once reliable tourism influx from Asia and Canada has dropped significantly, he notes. “I could see some retailers who might have sales of, say, $20 million a year and an operating profit of $1 million before taxes, going to $5 million to $7 million a year with operating losses exceeding $1 million,” he said.

With wildfires spreading in unpredictable patterns, merchants often had little warning. In downtown Santa Barbara, retailers and restaurant owners were hurriedly evacuated from the busy State and East Gutierrez streets on one of the busiest shopping days in December. “There was a huge mushroom of smoke that happened in just a matter of a few minutes,” Maya Schoop-Rutten, owner of Chocolate Maya, told the national press.

Pierre Henry, owner of the Bree’osh bakery, in upscale Montecito, told local media he received a text alerting him to evacuate on the morning of Dec. 16 as the fires approached. Dozens of nearby shops, restaurants and other businesses were evacuated as well. Only a smattering of residents remained in surrounding neighborhoods, where dozens of costly homes were lost. Several banks and other businesses lost key data from melted-down computers, Flickinger says. As restaurants and retailers reopened, they were getting only about 40 percent of their footfall from before the fires, on average, partly because the anchor stores were not reopening as quickly, and also because any discretionary spending there was went to home-repair retailers.

Stand-alone restaurants in fire-affected areas that did not close reported greatly diminished traffic as well. When a brush fire threatened the Getty Center museum campus, in the posh Brentwood neighborhood of Los Angeles, nearby eateries suffered. “We had many cancellations at the Brentwood Restaurant and noticed a large drop at Cafe Brentwood,” said Anthony Corcoran, manager of locally based Foodco West, the parent company of those eateries.

“Shoppers at Regency Centers’ Newland Center, in Huntington Beach, home to 13 restaurants and an Albertsons anchor, were asked to evacuate as a brush fire imperiled the area.”

Shoppers at Regency Centers’ Newland Center, in Huntington Beach, home to 13 restaurants and an Albertsons anchor, were asked to evacuate as a brush fire imperiled the area. Over at Casitas Shopping Center, in Carpinteria, hundreds of residents stood in line for smoke-filtering masks. In Bonsall, near San Diego, the wildfire burned along the periphery of the River Village Plaza shopping center and scorched part of the roof of the AMC movie theater.

California retail suffered a double whammy last year: The seven October wildfires that swept through the northern California counties of Napa, Solano and Sonoma destroyed some 9,000 structures, including roughly 100 commercial buildings and several wineries. In Santa Rosa three chain restaurants along Hopper Avenue — Applebee’s, Arby’s and McDonald’s — were severely damaged or destroyed, as was the Markell gun-and-ammo store and many other shops besides. Two Trader Joe’s stores — one in Santa Rosa Marketplace and the other in Napa’s Bel Aire Plaza center — sustained damage. Bel Aire Plaza has reopened, but expectations for Santa Rosa Marketplace are that it will be down at least until April.

As of early last month, losses from the roughly 300,000-acre Los Angeles–area Thomas fire alone — by far the region’s largest — were estimated to be about $1.6 billion, according to published reports. That fire destroyed roughly 1,100 structures and damaged hundreds more. Combined with financial losses from hurricanes Harvey, Irma and Maria, losses from the series of California wildfires exceeded $100 billion, according to Swiss Re — though this total did not include losses from the Southern California fires that were still burning last month.